An importance sampling method based on the density transformation of Lévy processes

Kawai Reiichiro
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Kawai Reiichiro: Postal address : Financial Engineering, Fixed Income Department, Daiwa Securities SMBC Co.Ltd., 1-14-5, Eitai, Koto-ku, Tokyo, 135-0034, Japan. Email address: reiichiro.kawai@daiwasmbc.co.jp.

Monte Carlo Methods and Applications, 2006, vol. 12, issue 2, 171-186

Abstract: In this paper, we develop an importance sampling method with the help of flexible control on the Lévy measure in the density transformation. The method has significant efficacy even on evaluating random variables with complex path-dependent structures. Numerical examples are presented to illustrate convergence acceleration through variance reduction with a view towards financial derivatives pricing.

Keywords: CGMY process; , Esscher transform; , Gamma process; , Meixner process; , Monte Carlo simulations; , series representation; , subordination; , variance reduction (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (3)

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DOI: 10.1515/156939606777488833

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